Hi, can anyone offer whether the three fund strategy can be used during retirement years? We will be receiving our pension/profit sharing funds in next 1-3 years and would look to employ this strategy if it is effective during retirement for growth but particularly for income distribution. Thank you.

3 fund works for any stage. Other factors are whether assets are in taxable or tax deferred. At 70 you can use your rmd's for needed income or before then you can sell funds for income. I never saw the need for an income flow. I look at my portfolio to generate income based on growth.

"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley

The current low-yield environment is leading many investors to focus on only one piece of their portfolio’s total return, namely, the income return. This focus may be encouraging investors to consider strategies such as extending the duration of their bond portfolios, tilting their bond holdings toward high-yield bonds, or shifting their equity holdings toward higher-dividend-paying stocks. Investors may adopt one or more of these strategies in the belief that they will be rewarded with a more certain return and, therefore, less risk.

What these investors may fail to realize is that moving away from a broadly diversified portfolio and concentrating on certain sectors can potentially result in a less diversified portfolio, increased risk, decreased tax-efficiency (for taxable investors), and/or an increased chance of falling short of long-term financial goals. On the other hand, as discussed in this paper, a total-return approach potentially offers a number of portfolio benefits, including maintaining diversification, enhancing the portfolio’s tax-efficiency, and increasing the portfolio’s longevity.

I've been retired for 15 years and have held a 3-fund or 2-fund portfolio for most of that time. It has been very tax efficient for me but this will vary somewhat depending upon your mix of taxable to tax deferred accounts and how that compares to your desired asset allocation. I'm 50/50 for both so it's ideal - taxable in equity funds and tax deferred in bond funds.

As others have mentioned, I don't care about generating 'income' in the form of dividends. I prefer cap gains (growth) because they are more tax efficient. I take my dividends because I will pay tax on that no matter what and sell shares to generate cap gains to the extent I want more income.

Related newbie question - does asset allocation change from say your 30s to later in life? Or is it personal preference and other factors?

It depends on your, need, ability, and willingness to take risk. Each investor is different.

Retirees typically don't have a need to take a lot of risk, so generally speaking, you'll want to shift to a more conservative allocation as you approach retirement. This is what the target date funds do automatically.

But if your basic living expenses are covered by things like social security, pension, or rental income, then you might have the ability and willingness to take more risk with your investment portfolio. For example, some investors might want to shift to a riskier allocation in hopes of providing more for their heirs.

Others are comfortable with a classic 60/40 balanced portfolio for life.

In general, you start out with a high stock asset allocation that decreases with age, with the minimum stock allocation being 30%. Some now think that the stock allocation should be much lower when you first retire to help mitigate sequence of returns risk, then increasing the stock allocation as you age.

.We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequence inverse range of 75% to 25% in bonds. There is an implication here that the standard division should be an equal one, or 50-50, between the two major investment mediums.